Southwest Airlines chairman retires, six board members resign under pressure from major shareholder

DALLAS – Southwest Airlines will reshuffle its board of directors and longtime chairman Gary Kelly will retire next year, the company announced Tuesday morning.

The Dallas-based airline has recently come under pressure from hedge fund Elliott Investment Management, which has built a 10% stake in the airline and is pushing for changes it believes will improve Southwest's financial performance and stock price.

The two sides met on Monday. In SEC filings and a press release Tuesday morning, Southwest said six directors will leave the board in November and four new ones will be appointed, including candidates proposed by Elliott.

Southwest management will also present an updated business plan at the company's investor day in Dallas later this month.

The restructuring also takes place while Southwest other major changesincluding ending the open seat policy and adding night flights to the schedule.

Elliott blames Southwest's management for the airline's share price falling by more than half in three years. The hedge fund is seeking to replace Robert Jordan, who has been CEO since early 2022, and Kelly, the airline's current CEO. Southwest said Tuesday that Kelly has agreed to retire after the company's annual shareholder meeting next year, but Jordan will remain in his role.

Elliott argues that Southwest executives have failed to adapt to changing customer preferences and have failed to modernize Southwest’s technology, resulting in massive flight cancellations in December 2022This failure cost the airline more than a billion dollars.

Southwest has improved its operations, and its cancellation rate since the start of 2023 is slightly below the industry average and better than its main competitors United, American and Delta, according to FlightAware. However, Southwest aircraft have been on a number of disturbing incidents This included a flight that would have plunged nearly 400 feet into the Pacific Ocean, prompting the Federal Aviation Administration (FAA) to increase its oversight of the airline.

Southwest was a profit machine for its first 50 years of existence and never suffered a full year of losses until the pandemic brought air travel to a standstill in 2020.

Since then, Southwest has been more profitable than American Airlines, but far less than Delta Air Lines and United Airlines. Through June, Southwest's trailing 12-month operating margin was slightly negative, compared with 10.3 percent for Delta, 8.8 percent for United and 5.3 percent for American, according to FactSet.